New Delhi: Narendra Modi-led Gujarat has topped the list of 20 large states in terms of economic freedom, governance and inclusive growth, says a report released on Tuesday.

"The top state in India in (terms of) economic freedom in 2011 was Gujarat. It displaced Tamil Nadu which had been at the top in 2009," said the report of 'Economic Freedom of the States of India 2012' which was released by former RBI Governor and present Rajya Sabha Member Bimal Jalan.

According to the report prepared by noted economists Bibek Debroy, Laveesh Bhandari, Ashok Gulati and Swaminathan Aiyar, Gujarat is followed by Tamil Nadu and Madhya Pradesh.

The economic freedom index, which is based on the methodology developed by Canada-based Fraser Institute, is an indicator of economic governance, state level reforms and inclusive economic growth.

Gujarat freedom index, the report said, has been rising fast and estimated at 0.64 points, much ahead of Tamil Nadu and Madhya Pradesh at 0.56 points. Haryana and Himachal Pradesh have been placed at fourth and fifth positions respectively.

Narendra Modi-led BJP has been elected in the recently concluded Assembly elections for the third time.

According to the report, West Bengal, Jharkhand and Bihar figured in the bottom three in terms of economic freedom index for 2011.

The median score for economic freedom of all states, which had declined from 0.38 in 2005 to 0.36 in 2009, has improved substantially to 0.41 in 2011.

The biggest improvement has been registered by Madhya Pradesh with freedom index score rose from 0.42 in 2009 to 0.56 in 2011 enabling it to move up from sixth to third position.

The economic freedom report said that the biggest decline in index was recorded by Jharkhand which slumped from 8th position to 19th spot.

As many as eight states registered decline in their ranks. These include some of the most industrialised states like Tamil Nadu, Maharashtra and Andhra Pradesh, it said.

In over long-time horizon, it added, Punjab has fallen in economic freedom ranking from 6th position in 2009 to 12th place in 2011.

The report, which has a special reference to labour issues, said that lack of labour sector reforms was hampering economic freedom and growth.

The states with best labour regulation was Maharashtra followed by Karnataka and Punjab, while the states with worst track record of labour reforms were West Bengal, Kerala, Uttar Pradesh and Assam.

Speaking on the occasion, Jalan said, "The economic freedom is good for the country and growth."

He said that most of power is still with the central government even as there are talks about reforms.

"India has more than 100 or 125 central sponsored schemes for the benefit of poor. Why is the centre deciding all the parameters of schemes from Kashmir to Trivendrum or wherever," Jalan asked.